Signet Jewelers buying Zale for $900M

Zale Corp., which owns the Zales jewelry store

Zale Corp., which owns the Zales jewelry store chain, is being bought by Signet Jewelers, which owns the Kay Jewelers chain, for $690 million. This Zales store open for business on Jan. 4, 2007 in San Bruno, Calif. (Credit: AP / Paul Sakuma)

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Two diamond sellers are getting engaged.

Signet Jewelers said Wednesday it agreed to buy Zale Corp. for roughly $900 million to help it expand in North America.

Turns out, diamonds aren't just a girl's best friend; investors seemed to like them, too. On news of the planned acquisition, shares of Zale Corp. soared 40.31 percent to $20.92, while Bermuda-based Signet Jewelers Ltd.'s stock rose 18.14 percent to $93.65 on the New York Stock Exchange.

Signet, which operates 1,400 stores in the United States under the names Kay Jewelers and Jared The Galleria of Jewelry, and 500 stores in the United Kingdom under the names H. Samuel and Ernest Jones, said it will pay $21 per share. That's a 41 percent premium to Zale's $14.91 Tuesday closing price.

Dallas-based Zale, which operates 1,680 stores in North America under names including Zales, Gordon's and Peoples, among others, has about 32.9 million outstanding shares, according to FactSet.

Also part of the deal is about 11.1 million in warrants, a security issued by a company that gives the holder the right to buy securities, owned by Golden Gate Capital, a 22 percent stakeholder in Zale. Signet entered into a voting and support agreement with Golden Gate.

The companies value the deal at $1.4 billion. Excluding the roughly $500 million in debt Zale had as of Oct. 31, according to SEC filings, the deal is worth about $900 million.

Sales of jewelry got hammered during the economic downturn as shoppers pulled back, but Zale returned to a profit in its most recent fiscal year, ended July 31. More recently the chain reported its holiday sales in stores open at least one year, a key retail metric, rose 2 percent during November and December. Meanwhile, Signet reported the key figure rose 5 percent in the same period.

The acquisition still needs approval from Zale shareholders.

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